14) Lightfoot Company sells its product for $55 and has variable costs of $30 per unit. Total fixed costs are $25,000.
What will be the effect on the breakeven point if variable costs increase by 10% due to an increase in the cost of
direct materials?
A) It will increase by approximately 136 units.
B) It will increase by approximately 242 units.
C) It will decrease by approximately 136 units.
D) It will decrease by approximately 242 units.
15) Which of the following will lower the breakeven point assuming no other changes?
A) A decrease in the sales price per unit
B) An increase in total fixed costs
C) An increase in the variable costs per unit
D) An increase in the sales price per unit
16) Gould Enterprises sells computer disks for $1.50 per disk. Unit variable expenses total $0.90. The breakeven
point in units is 3,000 and budgeted sales in units are 4,300. What is the margin of safety in dollars?
A) $4,500
B) $1,950
C) $2,580
D) $780
17) The McPherson Company is facing a $6 increase in the variable cost of producing one of its products for the
upcoming year. Because of this situation, the sales manager has made a proposal to increase the selling price of the
product while increasing the advertising budget at the same time. The price increase will lower sales volume, but the
other changes may help the company maintain its profit margins. McPherson has provided the following
information regarding the current year results and the proposal made by the sales manager:
Current Year
Proposal
Unit sales
27,000
18,000
Sales price per unit
$48
$58
Variable cost per unit
$30
$36
Fixed cost
$76,000
$96,000
Relative to the current year, the sales manager’s proposal will:
A) decrease operating income by $90,000.
B) increase contribution margin by $90,000.
C) decrease the unit breakeven point.
D) decrease operating income by $110,000.
18) Moylan Company has provided the following contribution margin income statement:
Sales
$777,000
Variable expenses
$504,000
Contribution margin
$273,000
Fixed expenses
$212,000
Operating income
$61,000
If the sales volume increases 10%, which of the following statements is CORRECT?
A) Operating income will increase $6,100.
B) Operating income will increase $27,300.
C) Fixed expenses will increase $21,200.
D) Contribution margin will increase $77,700.
19) Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit,
and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. If Jarvis is forced to reduce
the selling price down to $9.00 per unit, and volume remains constant, how will that affect its breakeven point?
A) Breakeven will go up by 4,800 units.
B) Breakeven will stay the same.
C) Breakeven will go down by 4,800 units.
D) Breakeven will go up by 1,500 units.
20) Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit,
and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. If Jarvis is forced to reduce
the selling price down to $9.00 per unit, and volume remains constant, how will that affect its breakeven point in
dollars?
A) Breakeven will go down by $36,000 of sales revenues.
B) Breakeven will go down by $4,800 of sales revenues.
C) Breakeven will go up by $36.000 of sales revenues.
D) Breakeven will go up by $8,000 of sales revenues.
21) Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit,
and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. If Jarvis is forced to reduce
the selling price down to $9.00 per unit, and volume remains constant, how will that affect its operating income?
A) Operating income will go up by $6,000.
B) Operating income will become a loss of $6,000.
C) Operating income will become a loss of $2,000.
D) Operating income will go up by $2,000.
22) Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit,
and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. If Jarvis reduces the selling
price down to $9.00 per unit, they believe volume will rise to 13,000 units per month. How would that affect its
operating income?
A) Operating income will go up by $6,000.
B) Operating income will go down by $1,600.
C) Operating income will go down by $500.
D) Operating income will go up by $2,000.
23) Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit,
and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. How much is Jarvis’s
margin of safety expressed in units?
A) 250 units
B) 800 units
C) 160 units
D) 40 units
24) Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit,
and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. How much is Jarvis’s
margin of safety expressed in sales revenue?
A) $8,000
B) $7,400
C) $6,000
D) $2,600
25) Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums,
sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
Price $720 per unit
Variable cost $470 per unit
Fixed costs $8,000 per month
In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased
by $50 per unit. If volume and other factors remain constant, how will this affect the company’s breakeven point?
A) It will go up by 12 units.
B) It will have no effect on breakeven.
C) It will go up by 8 units per month.
D) It will go down by 2 units per month.
26) Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums,
sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
Price $720 per unit
Variable cost $470 per unit
Fixed costs $8,000 per month
In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased
by $50 per unit. If volume and other factors remain constant, how will this affect the company’s breakeven point in
sales dollars?
A) It will go up by $5,760 of sales revenue.
B) It will go up by $2,400 of sales revenue.
C) It will go down by $400 of sales revenue.
D) It will go down by $2,720 of sales revenue.
27) Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums,
sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
Price $720 per unit
Variable cost $470 per unit
Fixed costs $8,000 per month
In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased
by $50 per unit. If volume and other factors remain constant, how will this affect the company’s operating income?
A) It will go up by $5,760 of sales revenue.
B) It will go up by $2,400 of sales revenue.
C) It will go down by $400 of sales revenue.
D) It will go down by $2,000.
28) Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums,
sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
Price $720 per unit
Variable cost $470 per unit
Fixed costs $8,000 per month
In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased
by $50 per unit. The owner believes he can pass along half of the cost increase to his customers by raising the price
to $745, and still maintain the same volume of sales. If so, how will this affect his operating income?
A) It will go up by $1,000.
B) It will go down by $1,000.
C) It will go down by $1,225.
D) It will go down by $2,500.
29) Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums,
sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
Price $720 per unit
Variable cost $470 per unit
Fixed costs $8,000 per month
How much is his margin of safety expressed in units per month?
A) 8 units
B) 6 units
C) 4 units
D) 2 units
30) Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums,
sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
Price $720 per unit
Variable cost $470 per unit
Fixed costs $8,000 per month
How much is his margin of safety expressed in sales revenue?
A) $2,000
B) $1,600
C) $900
D) $1,200
31) Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per
unit. Variable cost is $0.95 per unit and the fixed costs are $32,000 per month. Taizhong currently sells 140,000
units per month. Under intense pressure to boost profits, the production manager has a plan which will reduce fixed
costs by 10%. How will this affect the breakeven point in terms of units per month?
A) It will go down by 12,800 units.
B) It will go down by 8,000 units.
C) It will go up by 1,200 units.
D) It will stay the same.
32) Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per
unit. Variable cost is $0.95 per unit and the fixed costs are $32,000 per month. Taizhong currently sells 140,000
units per month. Under intense pressure to boost profits, the production manager has a plan which will reduce fixed
costs by 10%. How will this affect the breakeven point in terms of sales revenue?
A) It will go down $3,200.
B) It will go down by $15,360.
C) It will go up by $9,460.
D) It will go down by $16,200.
33) Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per
unit. Variable cost is $0.95 per unit and the fixed costs are $32,000 per month. Taizhong currently sells 140,000
units per month. Under intense pressure to boost profits, the production manager has a plan which will reduce fixed
costs by 10%. How will this affect net operating income?
A) It will go up exactly 10%.
B) It will go down approximately 40%.
C) It will go up approximately 12%.
D) It will go up approximately 107%.
34) Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per
unit. Variable cost was $0.95 per unit and the fixed costs were $32,000 per month. Taizhong currently sells
140,000 units per month. Because of volatility in the precious metals market, the variable cost per unit has just gone
up by $0.05, but the company does not believe it can pass the extra cost on to the customer. To offset higher
variable costs, the production manager has developed a plan which will reduce fixed costs by 20%. How will these
combined changes affect net operating income?
A) It will go up 10%.
B) It will go down 20%.
C) It will go up 12%.
D) It will go down 110%.
35) Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per
unit. Variable cost is $0.95 per unit and the fixed costs are $32,000 per month. Taizhong currently sells 140,000
units per month. How much is the margin of safety expressed in units per month?
A) 13,600 units
B) 1,600 units
C) 800 units
D) 12,000 units
36) Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per
unit. Variable cost is $0.95 per unit and the fixed costs are $32,000 per month. Taizhong currently sells 140,000
units per month. How much is the margin of safety expressed in sales revenues?
A) $13,750
B) $12,500
C) $4,680
D) $14,400
37) A small business produces a single product and reports the following data:
Price
$8.00
Variable cost
$5.00
Fixed cost
$21,000
Volume
10,000
If the company reduces its price to $7.50, it believes that the volume will go up to 11,000 units.
How would this change affect operating income?
A) It will go up by $7,500.
B) It will go up by $8,000.
C) It will go down by $2,500.
D) It will go down by $4,500.
38) A small business produces a single product and reports the following data:
Price
$8.00
Variable cost
$5.00
Fixed cost
$21,000
Volume
10,000
The company’s variable cost goes up by $0.75 per unit, so they raise the price by the same amount.
Assume other factors remain the same. How would this change affect operating income?
A) It will go up by $7,500.
B) It will go up by $8,000.
C) It will go down by $2,500.
D) It will stay the same.
39) A small business produces a single product and reports the following data:
Price
$8.00
Variable cost
$5.00
Fixed cost
$21,000
Volume
10,000
The company’s variable cost goes up by $0.25 per unit. Fixed costs are lowered from $21,000 to $18,000. Assume
other factors remain the same. How would this change affect operating income?
A) It will go up by $500.
B) It will go up by $800.
C) It will go down by $2,500.
D) It will stay the same.
40) A small business produces a single product and reports the following data:
Price
$8.00
Variable cost
$5.00
Fixed cost
$21,000
Volume
10,000
The price is raised to $8.50 per unit, and the volume drops to 9.000 units per month.
Assume other factors remain the same. How would this change affect operating income?
A) It will go up by $500.
B) It will go up by $1,500.
C) It will go down by $2,500.
D) It will stay the same.
41) A small business produces a single product and reports the following data:
Price
$8.00
Variable cost
$5.00
Fixed cost
$21,000
Volume
10,000
Fixed costs go up by $2,000 per month, and the price is raised by $0.20 per unit. Assume other factors remain the
same. How would this change affect operating income?
A) It will go up by $500.
B) It will go up by $1,500.
C) It will go down by $2,500.
D) It will stay the same.
Learning Objective 19-5
1) Gray Company sells two products, X and Y. For the coming year, Gray predicts the sale of 5,000 units of X and
10,000 units of Y. The contribution margins of the two products are $2 and $3, respectively. The weighted-average
contribution margin would be $2.50.
2) For the next year, Hall Company predicts the sale of 15,000 units of a product with a contribution margin of $6
per unit and 30,000 units of another product with a contribution margin of $9 per unit. The weighted-average
contribution margin per unit is $8.
3) When companies sell multiple products, prices are set to ensure that all products have the same contribution
margin.
4) The combination of products that make up total sales, and the proportion of sales among the products is referred
to as “sales mix.”
5) A company sells products in two size packages-regular and long. The two products sell in equal numbers. The
contribution margin of the regular is $12 and the contribution margin of the long size is $18. The weighted average
contribution margin is $15.
6) A company sells products in two size packages-regular and long. They sell twice as many regulars as they do the
long size. The contribution margin of the regular is $12 and the contribution margin of the long size is $18. The
weighted average contribution margin is $15.
7) Browning Company sells two products-X and Y. Product X sells for $25 per unit with variable costs of $15.
Product Y sells for $30 with variable costs of $20. Total fixed costs for the company are $20,000. Browning
Company typically sells three units of Product X for every unit of Product Y. What is the breakeven point in total
units?
A) 2,000 units
B) 1,091 units
C) 1,500 units
D) 500 units